Running a business can be expensive, and the IRS allows business owners, independent contractors and employees to deduct work-related expenses from their taxable income. If you carefully track your expenses throughout the year, you can itemize them on your tax return and save money on your tax obligations.

Supplies vs. Expenses

The IRS makes a distinction between supplies and expenses. Supplies are tangible items that are part of normal, everyday business costs, and include items such as paper clips, ink, pens and mailing supplies. Expenses, by contrast, are typically not tangible supplies; instead, these are costs associated with running the business.

Utilities

For many business owners, utilities constitute a significant portion of business expenses. Electric, gas, Internet and phone bills are all deductible utility expenses. If you run a home-based business, you can deduct the portion of your utilities that is used to run your business. For example, a 200-square-foot office in a 2,000-square-foot home is 10 percent of the home's total size. Thus, you could deduct 10 percent of your home's utilities as business expenses if the office is used solely for business purposes.

Employee Compensation

Employee compensation, including salaries, retirement plans, bonuses and incentive pay, are deductible expenses. For many businesses, this is the largest portion of their expenses.

Rent and Mortgage

If you rent an office space, you may deduct the cost of rent from your tax returns. If, however, you own a space, you can deduct the interest paid toward your mortgage. Home office owners can deduct the portion of their mortgage interest that is used for the business. If the office is 10 percent of the home's size, a business owner can deduct 10 percent of mortgage interest as a business expense.

Other Expenses

Other services associated with your business may also be deductible. These include the costs of advertising, continuing education, travel expenses, business-related mileage and subscription services to items such as accounting software, legal software and similar business necessities.

References

About the Author

Van Thompson is an attorney and writer. A former martial arts instructor, he holds bachelor's degrees in music and computer science from Westchester University, and a juris doctor from Georgia State University. He is the recipient of numerous writing awards, including a 2009 CALI Legal Writing Award.